Jennifer Maxwell - Director, IR Paul Varello - CEO Ron Ballschmiede - CFO

Greetings and welcome to the Sterling Construction Company’s First Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jennifer Maxwell, Director of Investor Relations for Sterling Construction Company. Please go ahead Ms. Maxwell.

Thanks Kevin and good morning everyone. Participating with me on our call today is our Chief Executive Officer, Paul Varello and our Chief Financial Officer, Ron Ballschmiede. Just as a reminder, today's conference call involves certain statements that fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act. Any such statements are subject to risks and uncertainties, including overall economic and market conditions; federal, state and local government funding, competitor and customer actions and weather conditions, which could cause actual results to differ materially from those anticipated, including those risks identified in the Company's filings with the Securities and Exchange Commission. Accordingly, such statements should be considered in light of those risks. Any prediction by the Company is only a statement of management's belief at the time the prediction is made, there can be no assurance that any prediction once made will continue to reflect management’s belief and the Company does not undertake to publicly update those predictions. As a further housekeeping matter, please note we will not be heaving a Q&A session today in light of the pending public offering of our shares announced this morning. And now, I would like to turn this call over to our CEO, Paul Varello. Paul?

Thanks Jennifer and good morning everybody. We will note that today’s earnings call is a full week earlier than our previous calls, in great part that’s because our subsidiary and our financial teams have worked hard to improve the quality and the timeliness of the information we received. As a result, we intend to report earnings one week earlier in the future. Now on to business, as I mentioned in our last call 2015 was definitely a rebuilding year for Sterling. We accomplished many of our goals including strengthening our management team and improving our estimating in project execution efforts. We believe that our turnaround efforts were starting show meaningful results this year. Last year we focused less on top-line growth and more on bottom-line profitability. As a result, our revenue in 2016 dropped by $50 million from the previous year, but our net earnings began to improve. By the fourth quarter, we believe that we have sorted out most of our challenges and we’re able to focus our efforts on selectively bidding and winning projects that fit our capabilities and would improve our earnings. The results have been gratifying. During the last two quarters, we won $390 million worth of new projects at an average margin of more than 8.5%. In addition, gross margins have shown significant improvement on a quarter-to-quarter basis when compared to the prior year’s results. Here are the comparative numbers. This past Q1 of ’16 was 880 basis points higher than Q1 of 2015 and Q4 of 2015 was 550 basis points higher than Q4 of ’14, and Q3 of ’15 was 380 basis points higher than Q3 of the prior year. We expect this pattern of margin improvement to continue. Of course it will take time for these new projects to get underway and…

Thanks Paul and good morning everyone. Let me start with building on Paul’s backlog comments by providing a few additional details around our recent backlog trends. At March 31, 2015, September 30, 2015 and December 31, 2015, our backlog stood at $744 million, $718 million and $761 million respectively. And importantly, the embedded gross margin for those projects over that period of time was 6% at March 31, 2015, 6.5% at September 30, 2015 and 7% at December 31, 2015. During the first quarter of 2006 backlog increased by $93 million to end at a record level of $854 million. Turning to the margin and net backlog, at March 31, 2016 our gross margin and backlog was 7.7%, a 70 basis points improvement over the year-end 2015 level. We believe that this trend reflects progress made in the diligence around selecting the right projects to bid on, improvements in project execution, and the significant increases in transportation and infrastructure bid opportunities. Revenues for the first quarter of 2016 were $127 million slightly short of our expectations. That’s more than $8 million higher than Q1 revenues of last year which were $118 million. The first quarter not helped by cold weather in many of our markets. With record volume of 957 million of backlog plus low bid pending at December 31, 2015 and the continued strength in the transportation and storage infrastructure markets. Our full year revenue guidance remains in the $700 million to $735 million range. Mathematically that means then in order to get to the midpoint of the full year guidance we expect to record total additional revenues of approximately $500 million during the last three quarters of 2016. Directionally, we expect significantly higher revenues in each of our three remaining quarters with sequential growth in the second and…

Thanks Ron. As Jennifer mentioned earlier, we will not be having the Q&A discussion today. However, we will be happy to take your calls at a later time. If you wish to schedule a call, please feel free to contact our Director of Investor Relations, Jennifer Maxwell, or our partners at the Equity Group. Their contact information can be found on the bottom of our press release. I’d like to thank you for joining our call today.

Thank you. This does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.